POL00021572
POL00021572
I
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON TUESDAY 26
November 2019 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT 11:45 AM
Present: Tim Parker Chairman (TP)
Nick Read Group Chief Executive Officer (NR)
Ken McCall Senior Independent Director (KM)
Tom Cooper Non-Executive Director (TC)
Tim Franklin Non-Executive Director (TF)
Alisdair Cameron Group Chief Financial Officer (AC)
Zarin Patel Non-Executive Director (ZP)
In attendance: Veronica Branton Company Secretary (VB) I
Helen Davies QC (HD) (Item 7.)
Alan Watts Herbert Smith Freehills (AW) (Item 7.)
Ben Foat General Counsel (BF) (Items 7. & 9.)
Robin Nuttall McKinsey (RN) (Item 8.)
Stuart Shilson McKinsey (SS) (Item 8.)
Mathieu Halpin McKinsey (MH) (Item 8.)
Debbie Smith CEO — Retail (DS) (Item 10.)
Mark Siviter MD — Mails (MS) (Item 10.)
Apologies: Carla Stent Non-Executive Director (CS)
Action
1. Appointment of Non-Executive Director
The Board RATIFIED the appointment of Zarin Patel as a Non-Executive Director of Post Office Limited
for a period of three years from 26 November 2019 to the nearest Board meeting three years from
that date.
The Board APPROVED the appointment of Zarin Patel as a member of the Audit, Risk and Compliance
Committee.
2. Welcome and Conflicts of Interest
A quorum being present, the Chairman opened the meeting. The Directors declared that they had no
conflicts of interest in the matters to be considered at the meeting in accordance with the
requirements of section 177 of the Companies Act 2006 and the Company's Articles of Association.
Zarin Patel informed the Board that she was an independent member of the HM Treasury Board.
3. Minutes of Previous Board meetings including Status Report
The Board APPROVED the minutes of the Board meeting held on 23 September 2019.
The Board NOTED the action log and status of the actions shown. The paper on ensuring compliance
with dangerous goods transactions was NOTED. Post Office was the first line of defence, not the last
line of defence but we still had work to do to improve compliance with checking the contents of
parcels with customers. It was noted that branches had a laminated sheet showing information on I
restricted goods but it was not a straightforward set of restrictions.
Page 1 of 9
POL0000105
POL00021572
POL00021572
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
4.2 Remuneration Committee
w
Irrelevant
To do:
executive I
Page 2 of 9
POL0000105
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
Irrelevant
The Board NOTED the report.
Financial
Financial Performance Report
Al Cameron introduced the report and highlighted a number of issues:
* Performance in P7 had been slightly better than in P6. Discretionary spend was being restricted.
The Insurance and Telecoms businesses were still under pressure and Mails and Banking were
performing as expected. We could also improve performance in-year by not undertaking
aggregator work in Insurance and Telecoms
* Telecoms — PJT Partners, our advisors on the potential sale of the Telecoms business had advised
us to postpone the sale until after the general election. If we were going to sell the business we
needed to be focussed on obtaining the maximum price. Driving longer term cost efficiencies
became less critical if we decided to sell. We would been meeting PJT Partners again this week. It
was noted that we were required to inform Fujitsu of the approach we were going to take by 17
February 2020 if we had not agreed a contract extension in advance of this date
* There had been underspent in Change, much of which was deliberate and linked to tightening our
business case approvals
* The position with Cash had returned to normal
© We were planning to include more narrative in the Financial Performance report to Board but
dispense with the slide deck as part of the pack. The slides would still be produced for internal
use and could put in the Reading Room. Tom Cooper requested the inclusion of the slide which
showed the status of larger projects.
Anumber of points were raised, including:
© That an overall summary of the positives and the negatives which focussed on the big business
lines would be helpful. We also needed a better understanding of the root causes of problems,
what action we could take and whether the matter was resolvable. We needed to understand
trends better and what was happening with the key business streams, for example with Travel
Money it would be good to know whether we were experiencing a decline in-line with the market
or if we were losing market share. It was noted that this kind of analysis was part of the focus of
the quarterly performance reports for FST&I and Retail
Page 3 of 9
To do:
AC
POL00021572
POL00021572
POL0000105
6.2
6.3
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
© That there were too many business lines for a company with a £1bn revenue. This meant that we
were overstretched and unlikely to understand our competitors well enough.
Cash Management and Facility Management
Al Cameron introduced the paper and provided a summary of the main considerations. He noted that
the total earned as a combination of EBITDA and network subsidy had not changed greatly over the
last few years. We had borrowed significant amounts to fund investment for periods of time while
we had the headroom. We had been achieving cash efficiencies but now needed to understand the
line by line detail on working capital. The Bank of England (BoE) had promised to review the Note
Recirculation scheme to see whether it was suitable for the future.
We could manage within the facility headroom and drive further cash efficiencies but this did not
help us with the security headroom because this was limited to the cash in the network, client
liabilities and the Santander liability. Cash efficiencies reduced the cash in the network and therefore
the security headroom. We were trying to minimise our borrowing period and the longer vault
opening hours agreed by BoE meant that we should be able to remove both sets of REMs entirely on
a working day. We also should be able to fund a potential GLO settlement (within the assumptions
proposed) from within the headroom facility but this would make our security headroom very
limited. One option to consider was negotiating an exclusion of the Santander liability from the
security headroom. We were also analysing the figures associated with retaining cash from RBS for a
longer period at a fee but this would effectively be borrowing. If one of the big bets was focussed on
automation of the network we could consider asking Government to allow us to create some
investment funding.
IRRELEVANT
I IRRELEVANT
© the likelihood of us selling the Telecoms business was increasing but this capital would be offset
by the potential costs associated with a GLO settlement
* amore detailed account of the cash flow through the business and more information on working
capital was requested.
The Board NOTED the progress made on cash and facility management.
Borrowing Limits
Al Cameron introduced the paper and noted that we were unlikely to need to reduce the buffer
headroom but that it was prudent to have the option available.
The Board APPROVED a derogation to draw the Government Loan up to £850 million (i.e. to reduce
the headroom buffer from £200 million to £100 million), subject to approval by the CFO, for the
period from 27 November 2019 to 2 February 2020.
Group Litigation Update — subject to legal privilege
Ben Foat provided an update on the Group Litigation:
© the embargoed judgment on the Horizon Issues trial was likely to be handed down this week. We
would activate our Horizon contingency planning
* the first mediation would take place on 27 and 28 November 2019. The Postmaster Litigation
Subcommittee had recommended to the Shareholder approval of a settlement of up to £48m.
with a mechanism in place for seeking approval of up to £65m. Shareholder approval for Group
Litigation November 2019 Mediation Parameters had been confirmed by letter on 25 November
2019
the statements of fact for the Further Issues trial had been signed
Page 4 of 9
POL00021572
POL00021572
Action: AC
POL0000105
POL00021572
POL00021572
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
© the decision not to allow an appeal hearing on the Common Issues trial judgment was
disappointing but reaffirmed our revised litigation strategy.
Alan Watts reported that the claimants’ funders were seeking to obtain three times their costs before
starting to make pay outs to claimants (i.e. the funders were seeking £45m for their £15m
investment). The claimants’ starting position for settlement was £145m upwards but the difference
between the parties was not unusual at this stage. The claimants’ solicitors had not analysed the
claims to be able to underpin these figures and had concentrated on the post-termination losses. We
had looked at the individual cases and that might assist in reducing the numbers gap between the
parties. The mediators had been focussed on the 26 months which had been the fee paid to
postmasters exiting as part of the network transformation programme. We had a further meeting
with the mediator this evening and were clear on our strategy and financial limits.
Helen Davies QC reiterated the disappointment at the decision on appeal. There were a number of I
points that were clearly of relevance for the court of appeal and it was surprising that we had not
been given permission to appeal on these grounds. We were entering unchartered territory but
should assume that the Managing Judge would take a position that was as favourable as possible for
the claimants within legal constraints. The more reasonable we were in our approach, the more likely
we were to achieve a sensible outcome. I
We now needed to implement the findings of the Common Issues trial in full. This would entail asking
Subpostmasters to sign a new contract. This would be a focus of attention for the coming year.
The Horizon Issues trial judgment was expected to be adverse. The question would be the extent to
which it was ruled that system bugs could have led to shortfalls and how we could prove system
shortfalls if we could not rely on Horizon.
The judgment was likely to be handed down in the middle of mediation. We would not be arguing
over liability and needed to advise the claimants why this was a deal they should consider. The duty
of good faith and the notice period would be key issues. The Common Issues trial judgment had
referred to a 12 month notice period but we could not be sure that this position would be maintained i
by the Managing Judge in subsequent trials. We would have a two to three month window to settle
after the first mediation and would need to select the right lead cases for the next trial. Tier 1 and
Tier 2 had already been identified. I
The Shareholder letter approving the mediation parameters for settlement was discussed. The letter I
stated that “Shareholder approval is conditional on the settlement being fully funded by POL and has
no bearing on any current or future subsidy agreement”. Tom Cooper reported that BEIS had thought
we were indicating that our funding of the settlement was dependent on future government funding
and seeking a commitment to future funding which could not be given in advance of a spending
round. It was confirmed that POL was not seeking a funding commitment in advance of the normal
submission process but funding to deliver its SGEIs was part of its budgeting assumptions. POL and
UKGI/ BEIS recognised that the starting point on debt was going to be higher and therefore the need
for future financial support was more likely after a settlement of the group litigation order. In
addition, while the letter stated that any offer above £48m (and up to the £65m limit) should only be
made “if is ensures a final settlement takes place with all the claimants” UKGI/ BEIS recognised that a I
settlement offer could not be made directly to the criminally convicted but it was understood that a
global sum could be offered and the claimants could determine its distribution.
Anumber of points were raised, including:
© that we faced the operational challenge of implementing the changes required by the Common I
Issues trial judgment. We needed to be able to track this and should not be dilatory
* when issuing new contracts how bound were we by the Managing Judge’s interpretation of the
current contract? It was reported that we could specify the period of notice within the new
contracts but would still have an overriding duty of good faith. We would need to think carefully
about how we constructed the liability clause within the contract. We also needed to consider
carefully how we on-boarded our Subpostmasters; they needed to be given enough time to
understand the contracts prior to signature and the contracts needed to be written in plain
English.
The Board NOTED the updates in the paper and the next steps to be taken in the litigation, namely:
Page 5 of 9
POL0000105
POL00021572
POL00021572
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
attend to the courts’ decisions on the Horizon trial and not to allow an appeal on the Common
Issues judgment
e filing Post Office’s Defences for the Further Issues trial by 25 November 2019 (completed)
© attending mediation on 27-28 November 2019
draw up proposed criteria for selecting Test Claimants for later trials.
Purpose, Strategy, Growth (PSG)
Robin Nuttall introduced the presentation which was split into five chapters. We were currently in
Anumber of points were raised, including: I
* how had the costs been allocated in FS? For example, Travel Money was an integral part of our
network. Were we painting an unfair picture of the mails position and allocating too high a cost? t
Aminor reallocation of costs could change the apparent contribution of business lines. AC noted
that this was why we focussed on direct contributions rather than net contributions
that we needed to identify the permanent profit drivers
we were too dependent on the Banking Framework and needed to find different footfall drivers I
that the information provided could not currently show us the gain from taking out loss making
elements because we could not show how this impacted our fixed costs. The immediate focus
would be on retaining a network of 11,600 but moving branches to better locations and formats
(including outreach). It was helpful to be able to spread fixed costs over as wide a network as
possible
Page 6 of 9
POL0000105
POL00021572
POL00021572
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
Irrelevant I
Page 7 of 9
POL0000105
POL00021572
POL00021572
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
Ly Framework Document and Articles of Association
10.
Hy
Page 8 of 9
POL0000105
11.
12.
12.1
12.2
12.3
12.4
13.
POL00021572
POL00021572
I
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
I I
Sealings I
The Board APPROVED the affixingof the Common Seal of the Company to the documents set out b
against itemsnumber 1842 to 1853 inclusive in the seal register.
Future Meeting Dates
The future meeting dates were NOTED.
Forward Agenda
The forward agenda was NOTED.
Date of next meeting
- 19 December 2019 (further PSG session). Requirement to proceed to be confirmed nearer the date.
~ 28 January 2020.
Chairman
Page 9 of 9
POL0000105
POL00021572
POL00021572
POL0000105